New Court of Appeal Guidance on Failure to Serve Payment and Payless Notices

On 1 December 2015, the Court of Appeal provided for the first time authoritative guidance on the practical effect of any failure to serve payment notices and payless notices in response to applications for payment in the context of contractor's termination accounts in its decision in Matthew Harding (t/a MJ Harding Contractors) v Paice and another [2015] EWCA Civ 1231.

The purpose of this 54th (and final) issue of Insight of 2015 is to consider the new guidance that has been provided by the Court of Appeal in relation to final accounts, and the practice points arising.

Over the course of the past year, three cases1 have come before Mr Justice Edwards-Stuart presenting the all too familiar scenario whereby the contractor notified the sum due in a payment notice, and the employer failed to serve either a payment notice of its own, or a payless notice.

Harding v Paice

The facts

Mr Paice and Ms Springall (together "Paice") were property developers who engaged MJ Harding ("Harding") to carry out residential works to two properties in Surrey under a JCT Intermediate Building Contract 2011 (with amendments) ("the Contract") in March 2013.

Work commenced the following month, but the relationship between the parties quickly deteriorated and Harding gave notice to terminate the Contract in January 2014. The contractual termination provisions provided that

Harding was required to submit a final account in respect of work it had carried out, including the total value of the work properly executed up to the date of termination (under clause 8.12.3); Paice was to pay the amount that was "properly due" in respect of the account within 28 days of submission of its final account (under clause 8.12.5); and Paice had the option to commence adjudication or litigation proceedings within 28 days of the issue of the Final Certificate, in which event the Final Certificate would cease to be conclusive (under clause 1.9). Paice failed to pay Harding's final account, and Harding commenced adjudication proceedings. Harding claimed it was entitled to the sum due in its final account, which became the sum "properly due" under clause 8.12.5 of the Contract as Paice had not served a payless notice. Paice issued counter-adjudication proceedings in an attempt to re-value Harding's final account, and Harding applied for an injunction in an attempt to prevent Paice's counter-adjudication proceeding. In its injunction proceedings, Harding argued the failure by Paice to serve a valid payless notice made the sum in its final account the sum that was "properly due" under clause 8.12.5 of the Contract. In the alternative, Harding asserted that the substance of its final account...